Founded by YouTube stars, Maker Studios now reaches hundreds of millions of viewers a month

While conventional wisdom may hold that YouTube videos are amateurish and unprofitable compared to television, Maker Studios is making inroads to prove that wrong

Maker is one of a phalanx of new web-video powers, joining Machinima, FullScreen and Big Frame in pioneering the field. They aid prominent YouTubers in production, marketing and merchandise, while also amassing networks of and selling advertising for other YouTube channels.

Machinima, which focuses on a gamer audience, remains the 800-pound gorilla of the YouTube ecosystem. But Maker, with its comedy content aimed at a more general audience, is starting to catch up — at least in terms of audience.

According to ComScore, Maker has an audience of 20.4 million viewers a month, fourth in all of YouTube behind music-video contributors Vevo and Warner Music, followed by Machinima and FullScreen.

By Maker's own measurement, which includes a network of more than 2,000 affiliated channels, it reaches 130 million people a month.

Yet audience is not enough, which is why over the past few months Maker has built out its teams that bring home the bacon — advertising operations and merchandise. It now has the business infrastructure to back up its global network of talent.

“At first, our growth was more of an organic thing driven by new stars coming in and signing other talent," Danny Zappin, co-founder and CEO of Maker, told TheWrap. "Now it’s a studio: There’s a music component, animation, merchandise, talent management and the network. To be successful, you must be fully integrated and partner with random people to get the most value out of partnerships.”

And already, they've brought on a new partner in their music channel: Snoop Dogg, er Snoop Lion.

While Machinima earns deserved praise for the quality of its work and the strength of its business, Maker hews closest to YouTube's roots as a repository for user-generated content.

The Culver City, Calif.-based company was founded in 2009 by Zappin along with early YouTube stars Lisa Donovan (LisaNova), Kassem Gharaibeh (KassemG) and Shay Carl Butler (ShayCarl), who had amassed large followings on YouTube through comedy: Gharaibeh (pictured left) by interviewing random people and porn stars, Donovan by impersonating celebrities and Butler by filming absurd video blogs.

"The differentiator to start with is that the founders of Maker are YouTubers," Zappin said. "We understand the world, and so we’re different at the core."

Zappin found Hollywood impenetrable to an aspiring filmmaker and was keen to break into the creative world without going through established routes. He discovered YouTube in 2005 and soon got Donovan — then his girlfriend and now his fiancee — similarly entranced.

In combining prominent founders with a distaste for Hollywood executives, Maker Studios is to YouTube what United Artists was to early Hollywood. That studio, co-founded in 1919 by Charlie Chaplin, Mary Pickford, D.W. Griffith and Douglas Fairbanks, split off from the then-established studio model to create a talent-centric competitor.

The original United Artists, however, was undone by the rising costs of production and distribution, as well as the onset of sound in cinema. Thanks to YouTube and digital cameras, Maker is largely unencumbered by distribution and production costs. Still, monetizing its content remains a daunting task.

“Most people didn’t know why we were [founding Maker], and we couldn’t get any of our actor friends to participate," Donovan told TheWrap. "But we knew it was the future, and at the time, we thought it was six months away. The business is finally catching up where we thought it would be.”

The first step was building an audience. Donovan — with impersonations of Lindsay Lohan and Sarah Palin — already had a YouTube following in the millions, which helped her earn a brief stint on "MADtv."

“I was the first person to benefit from his understanding and strategy,” Donovan told TheWrap. “He had this little audience, drove his little one to mine, and because of that a lot of people saw my first video.”

That was before they founded Maker, but the same principle has applied ever since. Beginning with its four partners, Maker added other prominent YouTube stars like Ray William Johnson, who riffs on viral videos, and Nice Peter, who stages "Epic Rap Battles" between historical figures like Steve Jobs and Bill Gates or Dr. Seuss and Shakespeare.

"Maker's approach is 'we're a playground for talent to play,'" Marc Hustvedt a co-founder of online video publication Tubefilter and head of strategic partnerships at social video start-up Chill, told TheWrap. "'We'll give you studio time and space.' It's a world where Snoop Dogg can come in and goof around the same way KassemG can."

Still committed to cross-promotion, Maker believed each of those stars could be used to direct fans to new artists, which inspired the company to build a network of affiliated channels.

Johnson has established an extensive relationship with the company, making videos for his channels in Maker's studio. In turn, Maker markets and sells advertising for Johnson's channels and the 2,000 others in exchange for a chunk of any revenue.

Though its network stagnated at 400 million total video views in January, by June it crossed 1 billion. One reason is that Maker has implemented the business focus and infrastructure to turn its audience into a business.

In January 2010, the company had only 20 employees. Now it has more than 260, a group that includes advertising sales, business development and tech people.

A few key hires have proven to be a driving force behind Maker’s growth, most notably a pair of former Myspace executives, COO Courtney Holt and SVP of business development and operations Sam Wick.

“He brought an operational focus to it,” Jim Louderback, CEO of rival Revision3, said of Holt. "It was basically a bunch of YouTube stars that came together to try and build something who didn’t have a tremendous amount of operational or business focus."

Maker also identified ancillary revenue streams, adding a 20-man animation team and developing a merchandising company called Rodeo Arcade, which sells clothing, albums, stickers and other items promoting its partners' brands.

“We’re still trying to figure out how we make money in this space,” Louderback said. “If you get a person with a community, you can get that community to do a lot – buy T-shirts, hopefully pay for additional materials. We’re all experimenting with what makes sense.”

Perhaps nothing symbolized Maker's bumpy climb toward legitimacy as much as their new office space, a 40,000-square-foot series of building in Culver City. The new space includes three sound stages, an editing room and a props department

"Our old place was definitely makeshift," Donovan said. "You could hear every sound when you were shooting and had to tell the whole building to be quiet."

"The new place feels more legitimate," Zappin joked. "Talent comes in and says 'oh it's a real thing.'"

Legitimacy is a word one hears a lot from online video companies, itching for approval from top executives and advertisers while deriding their old-fashioned approaches.

“Maker is a prime example of a new generation of entertainment brands emerging on YouTube,” Alex Carloss, global head of entertainment for YouTube, told TheWrap in an e-mail statement. “By harnessing their deep understanding of the platform, Maker has become a hub for the creative community by offering efficient production infrastructure, easy collaboration with compatible artists and a means to rapidly engage with YouTube's global audience."

But the company does not yet have the imprimatur of others. Dana Brunetti, a Hollywood producer who is making "House of Cards" for Netflix, lamented the poor quality of most YouTube videos last week at TechCrunch's Disrupt Conference in San Francisco. He did not single out any studio, but most in Hollywood are still itching for feature film-quality production on Google's video behemoth.

Others within the online video community ponder whether Maker is too dependent on YouTube. YouTube takes a huge portion of revenue and commands lower advertising rates than many other sites.

"I haven’t seen these major major properties emerge out of Maker," Hustvedt said. "There is an undercurrent of anxiety about being so dependent on YouTube. They've mentioned how they want to develop their talent to be off of YouTube as well, but I just haven't seen that."

While The Collective has parlayed the success of "Annoying Orange" into a TV series and Machinima is doing promotional work for TV networks, Maker remains largely YouTube-focused.

While they could charge advertisers a higher rate on another site, they argue that YouTube's massive audience is more significant.

"We're well ahead of curve in terms of where's the business going to be down the road," Zappin said. "We're confident with how we're moving and with having things like merchandise, iTunes and a studio to do production services."

Recognizing the need to continue to expand, Maker is also pursuing new music and mobile initiatives, including the possibility of an app. To that end, they've already started to cross-promote from their music channel to artists' iTunes albums.

But now that they've built out their facilities, partnerships and staff, much of their focus can return to their original mission.

“The inspiration for company is to empower individuals to be creative, and we’ve created an infrastructure for that,” Donovan said. “That’s where Maker comes from – not to pitch or ask, but to go out and make things.”